ITALIAN MIN FIN CALLS REPORTS OF BANK SEPAH RESUMING FINANCIAL

C O N F I D E N T I A L SECTION 01 OF 02 ROME 001569 SIPDIS EB/ESC: HENGEL EB/ESC/TFS: COULTER E.O. 12958: DECL: 12/22/2018 TAGS: KNNP EFIN PREL ETTC PARM IR IT SUBJECT: ITALIAN MIN FIN CALLS REPORTS OF BANK SEPAH RESUMING FINANCIAL OPERATIONS "TOTALLY INACCURATE" REF: ROME 1500 ROME 00001569 001.2 OF 002 Classified By: Acting Deputy Chief of Mission Barbara Leaf for reasons 1.4 (b) and (d). ¶1. (C) Summary: ITALIAN Finance Ministry officials told Post that Iranian press accounts of Italy rescinding its restrictions on the Rome branch of Bank Sepah are "propaganda" and "totally inaccurate." Instead, ITALIAN officials say the existing controls on Bank Sepah will be maintained. Moreover, the bank is in the process of reducing its Rome employees from twelve to three, according to Ministry of Finance officials. Italy has also instituted new non-proliferation reforms concerning insurance, banking and export controls. End Summary. ¶2. (C) Giuseppe Maresca, Director General for Financial Crimes at the ITALIAN Finance Ministry, told Post on December 22 that Iranian press accounts of Italy rescinding its restrictions on the Rome branch of Bank Sepah are "propaganda" and "totally inaccurate." A 20 December Islamic Republic News Agency (IRNA) article quoted Bank Sepah Managing Director Hassan Ali Qanbari as saying, "Iranian authorities have discussed the bank's constitutional rights with ITALIAN judiciary officials," and the article posited that, "All problems had been resolved and the bank was ready to provide financial services to clients." Maresca explained that under ITALIAN law a bank can only be under the tight controls imposed by "extraordinary administration" for one year, a limit recently met by Bank Sepah. Although this expiration permits Bank Sepah to remain nominally "open," the implementation of existing UN resolutions prohibit the bank from engaging in financial operations, according to Maresca. - - - - - - - - - Existing Oversight - - - - - - - - - ¶3. (C) Maresca added that there has been no substantive change in Bank Sepah's capabilities in Rome. Romana Piscitelli, of the Financial Crimes Unit of the Italian Finance Ministry, told Econoff on 18 December that Bank Sepah remains subject to oversight from a number of overlapping ITALIAN authorities. The Bank of Italy ensures that Sepah does not create new business, and the Unita di Informazione Finanzaria (Italy's Financial Intelligence Unit) monitors all of Bank Sepah's expenses in Rome. The Guardia di Finanza (GdF) ensures that Bank Sepah does not sell its fixed physical assets, such as furniture, from its office in Rome. Piscitelli said that Sepah's dollar-denominated accounts remained blocked, but its Euro accounts were still being used for overhead and payment of salaries to the dwindling number of employees. The Comitato di Sicurezza Finanzaria (CSF) can authorize or reject transactions involving Bank Sepah's euro-denominated accounts, according to Piscitelli. - - - - - - - - - - - - - - - - - - - - New ITALIAN Non-Proliferations Reforms - - - - - - - - - - - - - - - - - - - - ¶4. (C) Piscitelli said that the ITALIAN government would soon be appointing a new overseer to verify information provided by Bank Sepah in Rome and to act as a compliance officer. She explained that Bank Sepah's transactions in Euros would then be subject to a two part approval process, first from the overseer, and then additionally from the CSF. She also said that under article 14 of legislative decree 155 of November 2008, banks can now remain under special supervision indefinitely; previously the limit was six months, subject to renewal. In the case of Bank Sepah, however, Piscitelli said the point was moot as it is not conducting financial operations. ¶5. (C) Italy's non-proliferation reforms concerned not only banks (reftel A),Piscitelli said, but also insurance and shipping. Consequently, ISVAP (Istituto per la Vigilanza sulle Assicurazioni Private e di Interesse Colletivo),the insurance regulator, will be sending an official circular in early January concerning the dangers for ITALIAN firms of doing business with Irital and IRISL. This warning will also note that Iran and Uzbekistan pose a high risk for all insurance companies. Previous alerts had only been informal, according to Piscitelli. ROME 00001569 002.2 OF 002 ¶6. (C) Piscitelli said that the Ministry of Economic Development will publish shortly in the official Gazette new criminal penalties for the illegal export of dual use items. The new maximum sentence will be eight years in prison; previously, punishments had been limited to financial penalties, Piscitelli said. - - - - - - - - - - - - - - - - - - - - - - Formal Closure of Sepah Remains Theoretical - - - - - - - - - - - - - - - - - - - - - - ¶7. (C) On 18 December Piscitelli said that the Bank Sepah branch in Rome would be reducing from twelve to three its number of employees. She speculated that the bank might have made the decision to reduce expenses as it is no longer conducting financial operations. On 22 December Maresca concurred, saying he thought the layoffs were related to Sepah's inability to pay employees. Maresca said that ITALIAN authorities had pressured the Iranians to close the bank, but that they refused. When asked how Bank of Italy could revoke the license of Bank Sepah to operate in Italy, Piscitelli said it would be very difficult as there aren't regulations about the minimum size or number of employees of a bank. ¶8. (C) Comment: We are seeing a very ITALIAN approach to the problem of Bank Sepah. Changing bank regulations to formally extend the period of special administration would require a higher profile action by the Bank of Italy and possibly parliament. The current course, maintaining restrictive measures and continuing strict supervision by multiple authorities, has the same practical effect. Unfortunately, it does not signal resolve to Tehran. However, given ITALIAN preoccupation over their trade relationship with Iran, the less provocative course is almost always preferred. Overcoming the dead weight of a "determined to do nothing" bureaucracy will be hard for the Iranians to overcome. Nonetheless, we do see a danger of Iran challenging the legality of continuing controls after the expiration of the formal special administration. Of course, we may take some comfort in the fact that the average ITALIAN lawsuit can be almost interminable. End Comment DIBBLE